Sinograin comprehensively cleans up non-core businesses; Ministry of Finance and SASAC issue policies
The state-owned grain giant Sinograin is undergoing drastic “slimming down”.
Economic Observer has learned that since October last year, in accordance with requirements from the National Development and Reform Commission and other authorities, Sinograin began cleaning up non-core investment operations, and by the first half of this year, it had deregistered all of the thousands of Sannong service companies established in Henan, Shanxi, and other places; and fully exited from seed industry investments in Gansu and Yunnan.
According to insiders at Sinograin headquarters, on July 1 of this year, Premier Li Keqiang issued important instructions to Sinograin, making clear that the company's development direction should highlight its core business, strictly observe the three bottom lines of safety, stability, and integrity, and effectively play the role of the main force in grain procurement and storage. In accordance with the central government's instructions, Sinograin is currently conducting a comprehensive cleanup of all other types of non-core investments across the company system, and the cleanup work is expected to continue until next year.
While cleaning up non-core investment operations, Sinograin is also planning to restructure and consolidate its rice processing enterprises in Sanhe City, Hebei; Dongguan City, Guangdong; and Shanghai, in order to reverse the situation of scattered operations and widespread losses in Sinograin's rice processing enterprises, and to cultivate a rice processing industry with market competitiveness.
After the implementation of the target price policy for the three major staple grains, Sinograin was required to significantly reduce its procurement and storage volume for policy-oriented grain procurement and storage, while ensuring that grain can be bought in, stored well, and sold out, thereby reducing the burden on the national treasury for grain procurement and storage.
Regarding grain and oil processing, Sinograin is delineating corporate operational boundaries, requiring that any general commercial operations unrelated to grain rotation must not be undertaken, and that any investment projects with little connection to policy-oriented grain procurement and storage must not be launched.
Returning to the Core Business
Sinograin was established in 2000. In accordance with relevant central regulations, it is specifically responsible for the management and operation of central grain reserves, and also accepts state commissions to carry out regulatory tasks such as grain and oil purchasing, sales, transfer, and storage. Clearly, the central government's positioning of Sinograin is as a “great granary”.
However, starting from 2005, Sinograin began engaging in grain and oil trade and processing, and in 2009 it began establishing Sannong service companies in Henan, Anhui, Shanxi, and other places to sell agricultural production materials such as chemical fertilizers, pesticides, and seeds. By 2011, Sinograin acquired a corn seed company in Gansu. In the field of agricultural product production and operations, Sinograin was going further and further.
The aforementioned Sinograin insider told Economic Observer that Sinograin's large-scale expansion in agricultural product processing and operations occurred after Bao Kexin took charge as general manager of Sinograin in April 2007, and many investments were “grand gestures” of billions or even tens of billions. As of the first half of 2011, in grain and oil processing alone, Sinograin had more than 90 enterprises, some of which were market regulation projects approved by the National Development and Reform Commission and supported by central budgetary funds.
In addition to grain and oil processing, also as of the first half of 2011, Sinograin's Henan branch had established more than 20,000 Sannong service companies, basically covering all villages in Henan. Besides selling agricultural materials such as chemical fertilizers and pesticides to local farmers, some Sannong service companies even sold cigarettes, alcohol, instant noodles, and other goods.
Sinograin's transformation from a “great granary” to a “great grain merchant” triggered doubts among industry insiders about its positioning. Starting from the second half of 2011, major corruption cases were successively exposed involving Qiao Jianjun, director of Sinograin's Zhoukou directly-affiliated grain depot in Henan, and Li Changxuan, general manager of Sinograin's Henan branch. The National Development and Reform Commission, the Ministry of Finance, and other authorities began to attach great importance to the problems existing in Sinograin.
Experts including Zheng Fengtian, vice dean of the School of Agricultural Economics and Rural Development at Renmin University of China, and Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, believe that Sinograin's large-scale expansion in production and operations has blurred the boundary between its policy-oriented and commercial roles, completely violating the original purpose for which the state established Sinograin.
The aforementioned Sinograin insider analyzed that the central leadership's instructions to Sinograin this time clearly require the company to watch over and manage central grain reserves well and serve the state's macro-regulation. Even if it engages in operations and processing, it must develop moderately around the rotation of stored grain. In effect, this is requiring Sinograin to return to its original positioning, to avoid problems of overstepping boundaries and expanding investment in the next step.
In accordance with the central government's instructions, Sinograin is currently cleaning up and divesting non-core investment operations, dismissing some enterprises that do not have the qualifications for grain procurement and storage, vigorously consolidating grain and oil processing enterprises, and drastically “slimming down”. This rectification is expected to continue until next year.
Reform Proposals
While Sinograin returns to its core business, there still exists a contradiction in its own positioning, namely that the state positions Sinograin as a non-profit institution that steadily receives state financial subsidies; but Sinograin is also an enterprise under SASAC, which requires Sinograin to meet annual profit growth targets. In terms of policy setup, this is tantamount to the Ministry of Finance and SASAC “fighting” each other.
It is widely acknowledged in the industry that in the field of policy-oriented grain procurement and storage, Sinograin currently holds a dominant position. The aforementioned Sinograin insider told Economic Observer that Sinograin now spends enormous costs on grain procurement and storage each year, reaching several billion yuan annually, which is in effect spending taxpayers' money. Although after the implementation of the target price for the three major staple grains, the state will reduce the quantity of grain procurement and storage, it will still be difficult to quickly reduce the fiscal burden.
Tu Changming, vice president of the Oils and Fats Branch of the Chinese Cereals and Oils Association and vice president of the China Vegetable Oil Association, believes that China's current single, wasteful method of grain and oilseed reserves urgently needs to change, and that relying solely on Sinograin's policy-oriented grain procurement and storage method, which has the highest cost and the most waste, can no longer suit market needs. He stated that many large state-owned, foreign-funded, and private enterprise groups now have excellent storage, logistics, and processing facilities in major production and sales areas across the country, and these facilities should be incorporated into the national reserve system to reduce the state's fiscal burden.
Tu Changming's reform proposal is that grain and oil raw materials purchased by the state could be stored free of charge in social enterprises through bidding, and these enterprises would have the right to use these raw materials, but must strictly comply with regulations. Once the state needs them, enterprises must submit sufficient grain and oil products within a certain period, which can be raw materials or finished products.
The aforementioned Sinograin insider also suggested that the state's grain reserve task should not be operated by enterprises, but should be operated by a formally positioned state institutional non-profit organization; then relevant departments could introduce market mechanisms through bidding and other means, utilizing enterprises' storage and logistics facilities to serve policy-oriented grain procurement and storage. He vividly stated that “enterprises participating in storage are merely custodians, and as long as enterprises serve well as custodians, they can profit and make money”.
In the view of the above two individuals, in this way the state would save a great deal on infrastructure investment for grain procurement and storage, grain reserve custody, finished grain processing, and other costs. Moreover, once policy-oriented reserve grain and oil flow, not only can quality be guaranteed, but raw grain can also be processed into finished products, which reduces the links of grain allocation, processing, and circulation, improves regulatory efficiency, and can also effectively curb corruption in grain procurement and storage.